AUCTION PREVIEW: ACGB May-34 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$900mn of the 3.75% 21 May 2034 Bond, issue #TB167. The line was last sold on 1 February 2023 for A$700mn. The sale drew an average yield of 3.5911%, at a high yield of 3.5925% and was covered 5.1171x. There were 47 bidders, 7 of which were successful and 1 was allocated in full. Amount allotted at the highest yield as a percentage of amount bid at that yield was 47.2%.

• The recent outright cheapening should provide at least a baseline level of demand at today’s auction, although questions surrounding the terminal rates of the current hiking cycles at the major global central banks provides some modest counter on that front.
• The 10-Year zone trades at the richer end of the historical range on the 5-/10-/15-Year butterfly, although that has been the case for some time, with the flatness of 10s vs. shorter dated paper failing to provide meaningful headwinds for demand for bonds in the sector.
• In micro-RV terms the carry and roll proposition is attractive vs. nearby, shorter dated lines, as you would expect with the line not included in the XMH3 futures basket (it is part of the XMM3 futures basket), while slightly longer dated paper has more attractive carry and roll (once again, as you would expect).
• Ultimately, we expect the newness of the line (this is only the second tap after the initial syndication in Nov ’22) to once again generate demand, as was the case in the prior auction. This will likely promote strong pricing and elevated cover.
• Results due at 0000GMT/1100 AEDT.